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Balrampur Chini: A sweet quarter...

Sep 6, 2004

Introduction to results
Post announcement of its 1QFY05 results Balrampur Chini has witnessed a major upsurge in its stock price. This may be attributed to the company's strong performance in the quarter, when its topline improved by 49% YoY backed by strong realizations. Also, the bottomline witnessed a growth of 197% YoY.

What is the company's business?
Balrampur Chini is India's largest sugar manufacturing company with four sugar mills having an aggregate capacity of 29,000 TCD (tonnes crushed per day). The ‘bagasse' produced as a by-product enables the company to generate power for its captive consumption and also sell it to other user industries, thereby adding to the topline. Further, the company has a capacity to produce 160 KLPD (kilo liters per day) of industrial alcohol for value addition of its product molasses.

(Rs m) 1QFY04 1QFY05 Change
Net sales 1,412 2,103 49.0%
Other income 5 3 -34.7%
Expenditure 1,203 1,596 32.6%
Operating profit (EBDITA) 208 507 143.1%
Operating profit margin (%) 14.8% 24.1%  
Interest 50 80 59.9%
Depreciation 61 88 43.0%
Profit before tax 102 342 235.5%
Tax 18 91 420.0%
Profit after tax/(loss) 84 251 197.3%
Net profit margin (%) 6.0% 11.9%  
No. of shares (m) 19.0 19.0  
Diluted earnings per share (Rs)* 17.8 53.0  
P/E ratio (x)   7.2  
(* annualised)      

What has driven performance in 1QFY05?
Sales:  Topline growth of 49% can be attributed to the fact that the sugar sales have risen by a healthy 21% during 1QFY05 as compared to the corresponding period last fiscal. This growth can be mainly attributed to the improvement in realisations during the quarter. Also, the increased sales of ethanol (a by-product) as a result of government orders to mix ethanol with automotive fuels have resulted in steady growth in realizations for this product, thus helping the overall growth. Robust industrial activity during 1QFY05 have resulted in an all round growth across the business segments with industrial alcohol witnessing nearly 27% YoY growth.

Segmental revenue (*)
  1QFY04 1QFY05 (%)Change
Sugar 1,354 1,633 20.6%
Alcohol 340 575 69.2%
Cogeneration 74 156 112.2%
Others 1 1 16.7%
Total 1,769 2,366  
(*) Gross sales
Expenditure break-up
(%) of sales 1QFY04 1QFY05
Raw materials consumed 63.6% 63.0%
Staff cost 6.3% 3.1%
Other expenditure 15.3% 9.8%

Operating margins:  A strong 930 basis points improvement in operating margins seems a result of the company's initiatives towards controlling expenditure at a time when realizations have improved. The company has specifically been able to reduce staff costs and other expenditure. Now, to put things in perspective, ethanol, which was negotiated at a price of Rs 17.5 per liter with the oil marketing companies, is now at a high of Rs 21 while the price of molasses has jumped from Rs 500 per tonne to Rs 2,500 per tonne, making realizations rise faster than the expenditure. This has further aided improvement in operating margins.

Net profit:  The company has witnessed a robust 197% YoY jump in the bottomline despite a 35% decline in other income and rise in interest and depreciation costs. This could be attributed to the industrial upturn, resulting in higher realizations and at the same time, the company's diversified presence, which enabled it to ride the wave.

What to expect?
Balrampur Chini is currently trading at Rs 380, implying a P/E multiple of 7.2x annualized 1QFY05 earnings. With the expected reduction in sugar cane acreage (area under cultivation) due to drought in some cane growing areas (like Maharashtra), and the government's cut in public distribution quota, we believe Balrampur Chini is likely to benefit going forward. Also, the company plans to consolidate by way of acquisitions in the near future. All these factors backed by strong demand in a year when supply is likely to be hit, are likely to help the company grow going forward. Also, the recent order passed by the CERC (Central Electricity Regulatory Commission) whereby private players can sell excess electricity to user industries without the interference of the SEBs augurs well for the industry, in general. All in all, it has been a decent year for the industry. However, given the volatile regulatory structure in the country, we believe investors should not read too much into the regulations and wait for final actions.

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